Refinancing means an act of paying a loan with the help of a new loan. This might sound funny to those having no idea about the refinancing market and the benefits therein. In fact, refinancing is an instrument and if used judiciously, it can work wonder as a saviour. Hence, it is important to know how to refinance student loans especially if you are a marketer and targeting second-hand loan market.
With the rising cost of living and the education, the market for the student loans refinancing has witnessed a phenomenal growth in recent years especially during the course of higher studies. According to an estimate, the Federal student loan has reached $1 trillion in 2017. On the flip side, the privately issued student loans were estimated at $165 billion at the end of 2011. However, the estimate of privately issued student loan lacks authenticity in the absence of any syndicated data on the same. Therefore, it will be apt to presume that a number of student loans from the private sources in the US is actually understated.
Key areas to refinance student loans:
- Sources of student loans: Federal student loans require students to submit applications with the FAFSA (Free Application for Federal Student Aid). After the scrutiny, a college or a career school may offer financial aids to the students including the federal student loan. In short, the federal student loan is a methodical job and as a student, you cannot be sure about qualifying for the same. On the flip side, private lenders like banks and financial institutions offer much easier process for the student loan. Therefore, things like how to refinance student loans may be an issue to many students studying in the US.
- Terms and conditions: Federal student loans are methodical. Therefore, the terms and conditions for availing the federal student loan apply equally to all. But, the private lenders have the liberty to set their own rules here. In other words, as a student, your chances of availing a student loan from a private lender is high. Hence, to play safe, you should apply for both the federal loan and the private loan to avoid any compromise here with your course timing.
- Uniqueness: A federal student loan can offer you many flexibilities under different heads such as the direct subsidized loans, direct consolidation loans, direct PLUS loans, and direct unsubsidized loans. Interestingly, a capping is there on the loan amount. For instance, an undergraduate student can avail $5,500 to $12,500 per year under the direct subsidized loans as well as the direct unsubsidized loans. Again, a graduate student can avail $20,500 per year under the direct unsubsidized loans. However, flexibility to that extent (as mentioned above) is missing in the case of the private lenders. Experts opine that federal student loan is better than the private student loans.
In short, things like how to refinance student loans call for a detailed understanding on the different loan offers before attempting to refinance them.